The two-pot retirement system officially opened on September 1, allowing for South Africans to withdraw from their savings.
According to the South African Revenue Service (Sars) Commissioner, Edward Kieswetter, close to 2,500 tax withdrawal directives were processed on the first day.
But have you considered the impact that the withdrawal will have on your retirement savings?
Run the numbers before you make the decision, warns PSS Investment's Wesley Davids.
"There are tax implications which will affect how much you receive on a withdrawal versus the more favourable tax incentive benefits from preserving your investment," he said.
Davids said while the system, according to National Treasury, is meant to support long-term retirement saving while offering financial relief, there are questions that should be asked before making the decision.
Ask yourself
Have I saved enough to retire comfortably after 65?
"Unless you're in the (top) 6%, then the answer is likely to be no. It is estimated that to retire comfortably in South Africa, you will need more than R7 million in savings and investments," he said.
How can I be sure my investment continues to grow?
Davids said while no new contributions can be made to vested pots after September 1, the vested pot will continue to grow in line with investment returns on selected payment options.
I have more than one policy, should I withdraw from one or all?
Davids explained that while funds can be withdrawn from the savings pots policy or retirement fund, you need to consider the tax implications and what your net payment will be after tax and long-term investment growth benefits.
Other factors to consider would be emigration, divorce, resignation and retirement.
If you emigrate, you will be able to access the balances in both the vested and savings pots on the day of emigration but the retirement pot cannot be accessed for three years after you leave.
If you get divorced, a divorce order can be applied against your retirement savings.
"This remains the same in the two-pot world. A claim in terms of a divorce order against any members’ retirement interest will be affected pro-rata across all the members’ pots. The legal principles relating to the division of estate, does not change under the two-pot system. Contact your financial adviser if you are in the process of getting divorced," Davids said.
If you resign, a withdrawal is taxed at your marginal tax rate and therefore you should consider transferring the value of your saving pot into your retirement pot to be converted for income in retirement.
And for retirement, Davids said a withdrawal at retirement is taxed according to the retirement fund lump sum benefits tax table. He said transferring the amount from the savings pot to the retirement pot can be converted for income in retirement.
"Consider all the angles, discuss the implications with your financial adviser and always consider the life you want to live in retirement. Humans are living longer and need to prepare adequately for such an event," Davids said.
IOL